US Tax Guide for Foreign Nationals
Are You a Nonresident Alien with a U.S. LLC?
Learn the tax rules for nonresident aliens and the specific filing rules for Form 5472 and Form 1040NR when you own an LLC.
This guide is dedicated to helping you comply with US tax laws if you are a foreign national (resident or nonresident alien) working or investing in the US. We take you through the substantial presence test and show you how to determine your US tax resident status. Regardless of your visa status, you will learn about the US resident tests for tax purposes, which are different than for immigration purposes.
If you are a nonresident alien, investing in US real estate or other US business activities from your home country, we give you an overview of deductions and credits available on Form 1040NR. We explain your tax filing options. For example, in the year of arrival, you might qualifiy for a dual status, resident or nonresident tax return .
You will also learn the more complex tax rules that apply if you are an F1 or J1 visa holder. Then we give you an overview of tax treaty benefits, which are particularly useful for F1 and J1 visa holders. Finally, you will learn about ITIN requirements, state tax requirements and social security and Medicare tax withholding rules.
For most Americans, completing their tax return is a confusing and frustrating exercise. We can only imagine how ominous the task must seem for you, a foreign visitor. Hopefully the information you find here will make the job easier.
Form 1040NR Filing Requirements
Who Needs to File a US Tax Return?
If you are a nonresident alien doing business or working in the United States, you are required to file a tax return. To "file a tax return" means to send your completed and signed tax return to the Internal Revenue Service (IRS), either through the mail or electronically. If you work or invest in a state that has an income tax, a state tax return will also be required. This is a separate document you must prepare and send to a state tax authority. See the section below about State Taxation.
You are considered to be engaged in a business even if you are an employee working for wages. If you are a student or scholar entering the US as an F, J, M or Q visa holder, and are classified as a nonresident, you are deemed to be engaged in a trade or business. Therefore, you need to file a Federal income tax return each year if you have any income subject to US income tax.
Additionally, if you are an exempt individual (explained under "Residency Status" below), you are required to file Form 8843 regardless of your income. Here is a description of the forms you are required to file:
- Form 1040NR, U.S. Nonresident Alien Income Tax Return, or if you qualify, Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, and
- For exempt individuals, Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition.
You can download all of these forms and their instructions from the IRS Web site at Forms & Publications.
In prior years, if you were a nonresident alien whose only US trade or business was the performance of personal services, and you received wages less than the exemption amount ($4,050 in 2017), you were exempt from the filing requirement. However, for years after 2017, the personal exemption has been repealed. Therefore, there is no longer a minimum income exception for wage earners.
Form 8843 is required if you are an "exempt individual." This does not mean you are exempt from paying US taxes, but that you are exempt from the "substantial presence test" for determining residency status. See Residency Status below for more on that. You must file Form 8843 even if you are not required to file an income tax return.
What Happens If You Don't File?
Studies have shown that most non-immigrant foreigners who are required to file, either do not file a return or file incorrectly. However, and it has also been shown that there is a massive over-payment of US taxes by foreign nationals who do not file, rather than underpayment (J.W. Antenucci, "Widespread Noncompliance and Over-payment of Taxes by Foreign Scholars," Tax Notes, May 13, 1996). Just because your employer has withheld tax from your wages does not mean that you have paid the proper amount. You could have a sizable refund due!
If you do not have any tax liability, you might be wondering what will happen if you do not file a return. Well, the IRS will not impose penalties if no tax is due. However, the terms of your visa require you to comply with all laws of the United States, including the requirement to file an income tax return. You might be required to show proof that you filed if you wish to change your visa status, or become a permanent resident, or regain entry into the United States once you have left. Don't risk your visa status by failing to comply with this requirement.
When and Where to File
If you receive wages subject to US tax withholding, the due date for filing your tax return is generally April 15 of the following year. If April 15 falls on a weekend, the due date is the next work day that is not a holiday. If you did not receive taxable wages during the year, the due date for filing your tax return is June 15 of the following year, with the same deferral for weekends. Your Form 1040NR or Form 1040NR-EZ (including Form 8843) must be sent to the Department of the Treasury, Internal Revenue Service, Austin TX 73301. See IRS Publication 519 for more information.
How to Find Free Help
Call the local IRS office and ask for the Taxpayer Education Coordinator to find out about free taxpayer assistance for nonresident aliens. If you are a student or visiting faculty member, contact your International Student Services adviser on campus for information.
Choosing a Paid Tax Return Preparer
If your tax situation is complex, seek the aid of a professional tax return preparer. We happen to offer affordable tax return preparation services. To learn more see Our Tax Services. We also offer a low cost service exclusive to short-term cultural exchange visitors who come to the United States as J-1 visa holders and make less than $50,000. Here's where you can read about our Low Cost J1 Tax Refund Service.
Unfortunately, there are relatively few preparers who have experience and expertise in preparing returns for non-immigrant foreigners. Be sure to ask prospective tax preparers if they are familiar with Form 1040NR and the rules applicable to treaty exemptions and special elections. Do not engage a preparer who is not.
The professional designations of "Certified Public Accountant" or "Enrolled Agent" are indications of a preparer's competency in general, but not in specialty tax areas. Most tax preparers charge on a per hour basis rather than a fixed fee. If a preparer will not state an exact fee in advance, you should at least be told the maximum amount that you might have to pay.
Even if you are planning to hire a preparer, it's best to learn as much as you can on your own. Take some time to look through these pages. You might find that you can do the job yourself.
Filing Your Own Return
The first thing you must do is to determine whether you are a resident, a nonresident, or a dual status alien for tax purposes. These titles do not relate to your immigration status.
Even though you are a citizen of another country, you might still be considered a US resident for US tax purposes. This is an important first step because it determines what forms to file, and whether you are eligible to claim certain deductions and treaty benefits. See Your Residency Status below. Also, we have an interactive questionnaire for you that will guide you to the correct results at Learn Your Residency Status.
If you determine that you are a nonresident or dual status alien, all the information you will probably need to complete your nonresident or dual status return is contained in two Internal Revenue Service booklets and the instructions to Form 1040NR for the current year. The IRS booklets are Publication 519 (U.S. Tax Guide for Aliens) and Publication 901 (U.S. Tax Treaties). This information is explained, condensed and simplified here.
If you are a resident of Canada, you will also find IRS Publication 597 (Information on the United States-Canada Income Tax Treaty) helpful. All of this material can be obtained from the IRS Web site at Forms and Publications. You can view and print tax forms and publications using the PDF file format.
Here is a list of all the forms and publications you should need:
- Form 1040NR and Instructions or Form 1040NR-EZ and Instructions.
- Form 8843
- Form 843 (for improperly withheld social security tax)
- Publication 519
- Publication 901
- Publication 597 (if you are from Canada)
Reading the first page of the instructions to Form 1040NR-EZ will tell you if you can use this shorter form. If you cannot, use Form 1040NR.
After determining your residency status, proceed to The Tax Return below to learn about filing status and how specific items of income and expense are reported on your return.
Why Residency Status Is Important
The first thing you must know in order to file your tax return is whether you are a resident or nonresident for US tax purposes. If you find that you are both a resident and nonresident in the same year, you are a dual status alien for which special rules apply. The designation of resident for tax purposes is completely separate from your immigration status. You might qualify as a resident for tax purposes while remaining a non-immigrant alien for immigration purposes.
If you are a nonresident, you must file a special tax form (Form 1040NR), pay tax only on US source income, are subject to special rates, and might qualify for treaty exemptions. Conversely, if you are a resident for US tax purposes, you are generally under the same rules and file the same forms as a US citizen. That means you report your worldwide income rather than just US source income.
Determining Your Residency Status
To determine your residency status, go to Learn Your US Residency Status and answer the questions. Then come back here for further explanation. The tests for determining whether you are a resident or nonresident alien for US tax purposes are also explained on the first few pages of IRS Publication 519. Following is a condensed version of that explanation.
The Green Card Test
You are a lawful permanent resident of the United States if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. You generally have this status if the U.S. Citizenship and Immigration Services (CIS) has issued you an alien registration card, also known as a "green card" (although it is not actually green).
If you have not met the substantial presence test, you are a US resident for tax purposes beginning on the first day you are present in the US as a lawful permanent resident. As a resident taxpayer you must report, for US tax purposes, your worldwide income.
If you are classified as a resident for the entire calendar year, you are generally eligible to claim all deductions and credits available to US citizens, and should file Form 1040. If you are married you can file a joint return with your spouse. As a resident taxpayer, you still might be eligible to claim certain treaty benefits under the US tax treaty with your home country. See Tax Treaties below.
The Substantial Presence Test and Definition of Exempt Individual
To meet the substantial presence test, you must be physically present in the United States during a period (in which you are not an A, F, G, J, M or Q visa holder) on at least:
- 31 days during the current year, and
- 183 days during the 3-year period that includes the current year and the previous two years, counting:
- all of the days you were present in the current year,
- 1/3 of the days you were present in the first preceding year, and
- 1/6 of the days you were present in the second preceding year.
Closer Connection Exception
Even if you meet the substantial presence test, if you are present in the United States for less than 183 days during the calendar year and can establish a closer connection to your home country, you are treated as not meeting the substantial presence test. See IRC Section 7701(b)(3)(B). However, if you have applied for a green card, this exception won't work. See IRC Section 7701(b)(3)(C). To claim the closer connection exception, you should include Form 8840, "Closer Connection Exception Statement for Aliens" with Form 1040nr.
An exempt individual is someone whose days in the United States are not counted toward the substantial presence test, not someone who is exempt from tax. If you are an exempt individual, you are a nonresident alien until you no longer meet the definition of exempt individual, you change your visa status or you receive permanent residency status. You are generally in this category if you are:
- An individual temporarily present in the United States as a foreign government related individual (A or G visa holder).
- A teacher or trainee temporarily present in the United States under a J or Q visa, who substantially complies with the requirements of the visa.
- A student temporarily present in the United States under an F, J, M or Q visa, who substantially complies with the requirements of the visa.
- A professional athlete temporarily in the United States to compete in a charitable sports event.
Teacher or trainee.If you are a teacher or trainee temporarily in the United States in J or Q status, and you have been present in the United States during no more than two calendar years out of the last six calendar years, you are an exempt individual. Any day spent in the US during a calendar year counts as a full calendar year. For example, let's say you entered the US on December 28, 2017 as a trainee on a J visa, and stayed in the US continuously through 2019. Your days in this country are exempt from the substantial presence test for 2017 and 2018, but they all count in 2019.
That means you were a nonresident alien in 2017 and 2018. But if you were in the US for at least 183 days in 2019, you will pass the substantial presence test in 2019. If you remain in the US as a J visa holder, you will again be an exempt individual in 2024.
Exception: If all of your compensation during the six year period is from a foreign employer, the two year exemption period is extended to four years.
Student.If you are a student temporarily in the United States on an F, J, M or Q visa, and you have been present in the United States during no more than five calendar years, you are an exempt individual. For example, let's say you entered the U. S. on June 4, 2014 as an F-1 student visa holder, and have remained here until 2019. You are a nonresident alien for 2014, 2015, 2016, 2017 and 2018. If you were in the US for at least 183 days in 2019, you will pass the substantial presence test in 2019.
Members of the family.If you are an exempt individual, members of your immediate family who are with you in the United States on visas derived from your visa (J-2, F-2, etc.) are also exempt individuals.
If you are employed, make sure your employer withholds taxes from your wages based on your nonresident alien status. That usually means taxes should be withheld allowing for no standard deduction. If the employer does not adequately withhold, you will end up owing the balance when your tax return is filed.
A dual-status alien is both a nonresident alien and a resident alien in the same year. That means your tax return becomes more complicated. Publication 519 explains how to figure the tax in Chapter Six. Here are the most common circumstances of dual status:
- When you enter the US and receive permanent residency status (receive a Green Card) during the year of arrival
- When you enter the US and pass the substantial presence test in the year of arrival
- When you enter the US and do not pass the substantial presence test, but qualify for and make the First Year Choice election (see below)
- When you hold a J, F, M, or Q visa the first part of the year and receive permanent residency status during the year
- When you hold a J, F, M or Q visa during part of the year, but later change to an H visa or other status eligible to use the substantial presence test, and pass the test
- When you leave the United States permanently during a year in which you qualify as a tax resident, but only if certain conditions apply. (See Last Year of Residency in Chapter One of Publication 519.)
Residency Status Examples
Mary, from France, arrived in the US as an H1b visa holder on April 15, 2018. Mary remained in the US, working for a US employer, for the entire remaining calendar year. Mary was not present in the US in 2016 or 2017. Mary passed the substantial presence test in 2018, since she was present in the US for 260 days in 2018. Mary's residency starting date is April 15, the date of her arrival. She is therefore a dual status resident for 2018 and must file a dual status return. Mary should report only US source income (if any) for the portion of the year prior to April 15, and her worldwide income for the portion of the year after April 14.
Assume that Mary in Example I arrived September 15, rather than April 15. Also assume that Mary was present in the US in 2016 for 120 days and in 2017 for 150 days. Mary did not pass the substantial presence test in 2018, because her total days computed for 2018 are 177 [(120 x 1/6) + (150 x 1/3) + 107]. Mary should therefore file a nonresident tax return.
Assume the same facts as in Example II, except Mary spent 180 days in the US in 2017 rather than 150 days. Mary passes the substantial presence test in 2018, because her total days computed for the test are 187 [(120 x 1/6) + (180 x 1/3) + 107]. Mary must file a dual status tax return, unless she maintains a closer connection to France and qualifies under the closer connection exception provided for in IRC Section 7701(b)(3)(C). In that case she is deemed to be a nonresident and should file a nonresident return showing the closer connection exception on Form 8840.
Year of Departure
You might be a dual-status alien if you permanently left the US during the year. If you left the US to re-establish your residence in your home country after you met the substantial presence test, your residency termination date is generally December 31 of the year you leave. In that case, you are considered a US resident for the entire calendar year. However, you can claim to be a dual-status alien for the year you leave if you meet the following conditions:
- You are not a US resident during any part of the following year, and
- You establish that, after you left the US, your tax home was in a foreign country and you had a closer connection to that country than the US.
If you meet these conditions, you have the option to determine your residency termination date as the last day in the calendar year that you were physically present in the United States, which means that you will be a dual-status alien for that year.
When filing as a dual-status alien, different rules apply for the part of the year you were a tax resident of the United States and the part of the year you were a nonresident. A dual-status taxpayer cannot use the standard deduction and, if married, cannot file a joint return.
You must file Form 1040NR or Form 1040NR-EZ and write "Dual-Status Return" across the top. Include Form 1040 with your return to show the income and deductions for the part of the year you were a resident. Write "Dual-Status Statement" across the top. For detailed instructions see Chapter Six of IRS Publication 519, U.S. Tax Guide for Aliens.
Before leaving the United States, aliens are generally required to obtain a certificate of compliance, also known as a sailing permit or departure permit, by filing Form 1040-C with a local IRS office. Visiting students and teachers are not required to get a sailing permit as long as their employment income is authorized by the U.S. Citizenship and Immigration Services (CIS). Several other categories of visa holders are also exempt from the requirement to obtain a sailing permit. See Chapter Eleven of IRS Publication 519 for a complete list.
The First Year Choice
If you arrive in the US too late during the year to pass the substantial presence test, or if you were an exempt individual during the first part of the year, then changed visas later in the year, you are classified as a nonresident alien for the entire calendar year unless you make a special election. This generally means that you cannot claim the spousal and dependency exemptions for your spouse or children.
However, there is a special election [IRC Sec. 7701(b)(4)] to be treated as a resident alien from your date of arrival if you satisfy the following tests:
- You are not otherwise a resident alien for the year,
- You were not a resident alien at any time in the immediately preceding year,
- You are a resident alien under the substantial presence test for the immediately following year,
- You are present in the United States during the election year for a period of 31 consecutive days,
- Your days of US presence are 75% or more of the total days between the beginning of the earliest 31 consecutive day period and December 31.
If you make this election, you will be a dual-status alien and you can claim an exemption for your spouse for years prior to 2018. (Beginning in 2018, personal and dependency exemptions are no longer allowed.) Furthermore, the regulations include an extremely liberal rule that permits an alien who makes this election to make the election as well on behalf of dependent children who themselves satisfy the test [Reg. Sec. 301.7701(b)-4(c)(3)(v)].
You must, however, have ITINs for your spouse and children to claim them. Also, to make the election you must pass the substantial presence test in the year following the election year, which means you will need to file an automatic extension for your current year return so you can file after you pass the test for the following year.
Combining the First Year Choice with the Joint Return Election
A further election is available, when combined with the First Year Choice election, to file a joint resident return with your spouse and be treated as a US resident for the entire year (see The Tax Return below). Under this election, you can claim the standard deduction and other tax benefits available to US citizens and residents, but you are subject to tax on your worldwide income for the entire calendar year. In order to eliminate double taxation, the foreign tax credit and possibly the foreign earned income exclusion are available to reduce or eliminate double taxation.
Simon arrived in the US for the first time on September 1, 2017 with his wife and daughter from his home country, Australia. Simon and his family are L visa holders. Simon is a nonresident alien for US tax purposes in 2017.
On a nonresident return, Simon gets no benefits for family members. However, Simon and his family can choose to make the First Year Choice election to be treated as residents from the date of arrival. This would make Simon a dual status alien, and Simon could claim a spousal and dependency exemption for his wife and daughter for 2017. (Beginning in 2018, deductions are no longer allowed for personal and dependency exemptions.)
Additionally, if Simon and his wife choose to make a joint resident return election under IRC Sec. 6013(h), they could file a joint resident return and claim the standard deduction. However, on either a dual status or resident return, Simon would be required to report worldwide income for his (and his wife's) period of residency.
Nonresident Spouse Treated as a Resident
If you or your spouse is a resident for tax purposes at the end of the year, and the other spouse is a nonresident, you can elect to treat both you and your spouse as residents for the entire year and file a joint resident return. This rule applies even if the spouse who is a resident at the end of the year is a dual-status alien (a nonresident at the beginning of the year). However, if you and your spouse make this election on a joint return, you are both required to report your worldwide income for the entire year. See The Tax Return below for more information.
The Tax Return: Form 1040NR
Your Filing Status - What Difference Does It Make?
Choosing the proper filing status is important because it is used to determine what tax rate schedule you will use for your effectively connected income. An explanation of filing status is in Chapter Five of IRS Publication 519. It is also discussed in the Instructions to Form 1040NR.
If you are single on the last day of the tax year, check box 1 or 2 on Form 1040NR (or box 1 on Form 1040NR-EZ) in the space under "Filing Status." Some married persons who are residents of Canada, Mexico, South Korea, or a US national, who have dependent children and who did not live with their spouse for at least the last six months of the tax year may file as single. (A US national is an individual who, although not a US citizen, owes his or her allegiance to the United States.)
The single rates are lower than married filing separate rates. If you are in this category, see the additional requirements in the Instructions to Form 1040NR.
If you are married on the last day of the tax year, and your spouse is a nonresident alien, you do not have the option to file Form 1040NR jointly with your spouse. Married filing jointly is not an option on Form 1040NR. If you file Form 1040NR or Form 1040NR-EZ you must file as married filing separately.
Options to File a Joint Resident Return
IRC Sec. 6013(g). If you are a nonresident alien at the end of the year and are married to a citizen or resident of the U.S., you can make a special election to file a joint resident return (Form 1040) with your spouse and you will be treated as a US resident for the entire year.
IRC Sec. 6013(h). An election is available to file a joint resident return (Form 1040) with your spouse and be treated as a US resident for the entire year in the year you become a resident (are a resident at the end of the year) if your spouse is also a resident at the end of the year. This election is available if either you or your spouse, or both of you, are dual status aliens.
Under either of these elections, you can claim the standard deduction, spousal and dependency exemptions (for years prior to 2018), and other tax benefits available to US citizens and residents, but you are subject to tax on your worldwide income for the entire calendar year. In order to reduce or eliminate double taxation, the foreign tax credit is generally available to claim against foreign taxes paid on foreign source income.
Determining What Income Is Taxable and How to Report It
If you are a nonresident alien, you are subject to US income tax only on certain income from sources within the United States and on certain income connected with the conduct of a trade or business in the United States. Generally, you do not report income from sources outside the United States on your US tax return. Your US source income is divided into two general categories - income that is effectively connected with a US trade or business and income that is not effectively connected with a US trade or business.
Effectively Connected Income
Income that is effectively connected with a US trade or business is reported on the first page of Form 1040NR or Form 1040NR-EZ. It is subject to tax at the same graduated rates that apply to residents, and can be offset by allowable deductions and exemptions. Effectively connected income can also be partially or fully excluded from your income by treaty provisions between the United States and your home country. See "Where to Find Treaty Information" under Tax Treaties below.
If you are in the United States as an F, J, M, or Q visa holder, you are considered engaged in business in the United States. That means any US source income that is taxable to you in connection with your scholarly activities, such as wages or scholarship and fellowship grants, is included in this category. Also, any other income from personal services performed in the United States is generally considered effectively connected income.
Form 1040NR Graduated Tax Rates on Effectively Connected Ordinary Income for 2019:
- 10% on your taxable income from 0 to $9,700 (You pay 10% of taxable income)
- 12% on your taxable income from $9,700 to $39,475
- 22% on your taxable income from $39,475 to $84,200
- 24% on your taxable income from $84,200 to $160,725
- 32% on your taxable income from $160,725 to $204,100
- 35% on your taxable income from $204,100 to $510,300
- 37% on your taxable income over $510,300
Rates for Effectively Connected Capital Gains for 2019:
For gains from capital assets owned by you for one year or less, called short-term capital gains, you pay the same rates as effectively connected ordinary income, shown above. The tax rate on net long-term gains (on capital assets held for more than one year), is 0% for most taxpayers, but the rate increases with your income to a maximum of 20%.
We have left out a lot more to talk about here, relating to the computation of capital gains and losses and how they are taxed. If you would like to read more, try IRS Publication 544, Sales and Other Dispositions of Assets, and IRS Publication 550, Investment Income and Expenses.
Not Effectively Connected Income
If your US source income is not effectively connected with a US trade or business, it is reported on Schedule NEC on page four of Form 1040NR, (you cannot use Form 1040NR-EZ if you have this type of income). It is generally taxed at a flat 30% rate and cannot be reduced by deductions and exemptions.
Treaty provisions between your home country and the United States might provide for a lower rate of tax. See "Where to Find Treaty Information" under Tax Treaties below. Income that is typical of this category includes corporate interest, dividends, capital gains in excess of capital losses, prizes, awards and certain gambling winnings.
If you are a nonresident alien, capital gains on stocks, securities and other personal property are taxable to you only if you are present in the United States for at least 183 days during the tax year. A nonresident alien can be present in the US more than 183 days if they are an "exempt individual." (See the discussion under Residency Status, above.)
Generally, you cannot offset gambling winnings with gambling losses. However, if you happen to be a resident of Canada, you can claim gambling losses to the extent of gambling winnings under the U.S/Canada tax treaty. Bank interest received by nonresident aliens is statutorily excluded from taxation.
Nonresident aliens are generally subject to tax on wages for services performed in the United States as effectively connected income. The general rules on personal service income are in Chapter Two of IRS Publication 519.
There are exceptions to this general rule, however. First, note in Chapter Three of Publication 519 that nonresident visitors with F, J, M and Q visas can exclude pay received from a foreign employer, other than a foreign government. Second, any wages you receive might be exempt from US tax under a treaty between your country of residence and the United States. See IRS Publication 901 and Tax Treaties, below, to learn about treaty benefits.
If you received taxable wages during the year, you should receive a Form W-2 from your employer within 30 days after the end of the year. If any of your wages are exempt from income tax under a tax treaty, you should receive a Form 1042-S rather than a W-2 form. Record your taxable wages on page one of Form 1040NR or Form 1040NR-EZ on the line for wages.
Do not include any amount that is exempt by treaty on these lines. Any wages exempt by treaty are reported on line 22 of Form 1040NR and on page 5, Item L. On Form 1040NR-EZ they are reported on line 6 and on page 2, Item J. Attach one copy of any Form W-2 or Form 1042-S you received from your employer to the front of the return.
Scholarships and Fellowships
Any scholarship or fellowship grant that is taxable to you is considered effectively connected income and is subject to graduated rates. It is reported on line 12 of Form 1040NR and on line 5 of Form 1040NR-EZ. There are three ways, described below, in which part or all or your scholarship or fellowship grant can be excluded from income.
Foreign Source. If you receive a grant from a foreign payer, it is considered foreign source income and is not taxable. Generally, the source of a scholarship or fellowship grant is the source of the payer, regardless of who actually disburses the funds. Foreign source payments should not be reported on your tax return.
Qualified Scholarship. If you are a candidate for a degree, you can exclude amounts received as a scholarship or fellowship grant that you use for 1) tuition and other fees you pay to the university to attend class, and 2) fees, books, supplies and equipment that are purchased because of course requirements. The amounts you used for expenses other than tuition and course-related expenses (such as room, board and travel) are generally taxable.
Also, any part of a scholarship or grant that is compensation for services cannot be excluded as a qualified scholarship. Report the amounts excluded on lines 12 and 31 on Form 1040NR, and on lines 5 and 8 on Form 1040NR-EZ. Attach one copy of any Form W-2 or Form 1042-S you received from the payor to the front of the return.
Schools are no longer required to report qualified scholarships you receive in the form of tuition benefits, so Form 1042-S will no longer show these amounts and they need not be reported on your return. You are supposed to attach a statement to your return if you exclude qualified scholarship payments that are reported on a Form 1042-S. (See the instructions to Form 1040NR or Form 1040NR-EZ.) The statement should show 1) the amount of the grant, 2) the dates it covers, 3) the grantor's name, 4) expenses the grant covers and conditions of the grant, and 5) the amount that is taxable and tax exempt.
Fill-In Scholarship Statement: Here is a fill-in scholarship statement form in PDF format that you can fill in on the screen and print out for this purpose. ScholarshipStatement
Treaty Exempt Scholarships. If there is a tax treaty between the United States and your home country, it might contain a provision to exclude scholarship payments. See IRS Publication 901 and Tax Treaties, below, to learn about treaty benefits. On Form 1040NR, put the excluded amount on line 22 (not on line 12) and complete Item L on page 5. On Form 1040NR-EZ, put the excluded amount on line 6 (not on line 5) and complete Item J on page 2. Attach one copy of any Form W-2 or Form 1042-S you received to the front of the return.
Reporting interest, dividend and capital gain income is a little confusing. There are spaces provided to show it on page 1 of Form 1040NR, and in Schedule NEC on page 4 as income not effectively connected with a US trade or business. Reporting it on page 1 means it is effectively connected to a US trade or business.
To be effectively connected, the investment income must have a direct economic relationship to your United States trade or business. For example, investment income reported on a K-1 of a partnership you have an interest in could be classified as effectively connected income. If you are a student or scholar with investment income, your trade or business in the United States is studying, teaching, or doing research. Therefore, it is very unlikely you have effectively connected investment income.
The tax rate on income that is not effectively connected with a US trade or business is a flat 30 percent, unless a treaty provision between the United States and your home country reduces the rate. (We talk about tax treaties below). Show the income on page 4 and any US tax withheld on the income, and compute the tax. The computed tax and related withholding is shown on page 2 of Form 1040nr.
Exempt Interest. Interest paid on deposits with banks, on accounts or deposits with certain financial institutions, or on certain amounts held by insurance companies, are exempt from US tax even though they are US source income. If you file Form 1040NR, do not report this interest anywhere on the return.
Capital Gains. You do not pay tax on capital gains from the sale of stock or securities if you are a nonresident who has not been present in the United States for 183 days or more during the tax year, unless it is effectively connected income. In that case, tax applies at the lower capital gains rates for effectively connected income. However, if you are an "exempt individual" who resides in the United States longer than 183 days, you do pay tax on capital gains at the 30 percent rate, unless a lower tax treaty rate applies to you. (See below about tax treaties.)
Income from Rental Real Estate
You are given a choice regarding income from real property in the US. This income is generally considered income that is not effectively connected with a US trade or business, and is taxed at a flat rate of 30 percent of gross income. A nonresident individual is not required to file a US return if tax of 30 percent is withheld by the payor (usually the property manager).
Alternatively, you can file a tax return and include an election (under IRC Section 871(d)) to have the net income (after expenses) taxed as income effectively connected with a trade or business in the US. This is generally a much better way to go for nonresident aliens. Any net income is taxed at graduated rates beginning at 10 percent. Under Section 897 of the Code, gain on the disposition of real property by a nonresident alien is always treated as income effectively connected with a US trade or business, and is therefore taxable, but at the generous capital gains rates.
Deductions and credits are generally less available for nonresident aliens than for residents. First, deductions and credits can only offset effectively connected income; income that is not effectively connected to a US trade or business cannot be reduced by deductions and credits.
Second, while residents can claim the standard deduction in lieu of itemized deductions, nonresidents (other than students and business apprentices from India) are not allowed to claim the standard deduction. Third, while most nonresidents must itemize their deductions, the deductions available to itemize are limited. Following are brief descriptions of some of the more common deductions and credits that might be available to you. For more information see IRS Publication 519.
If you moved to the United States, or from one city to another during the year, you can deduct moving expenses if you work full-time for at least 39 weeks during the 12 months right after you moved. You will need Form 3903, which you can download from the IRS Forms, Instructions & Publications page. If you want more information on moving expenses, you can also download Publication 521, Moving Expenses. If you claim moving expenses you must file Form 1040NR; you are not eligible to file the shorter Form 1040NR-EZ.
The deduction for moving expenses is shown on line 26 of Form 1040NR for years prior to 2018. This deduction has been disallowed for the years 2018 through 2025.
Itemized deductions are a special category of deductions listed on Schedule A (page 3) of Form 1040NR. Nonresidents from India can elect to claim the greater of their itemized deductions or the standard deduction (described below).
If you are a nonresident from a country other than India, you cannot claim the standard deduction; you are only allowed to claim itemized deductions for costs that were paid during the year. Look through the types of allowable itemized deductions on Schedule A. Also see descriptions of the individual deductions in IRS Publication 519. The deductions are totaled on Schedule A, then reported on line 38 of Form 1040NR.
State Income Taxes. If you had state and/or local income tax withheld from your wages during the year, you can claim the amount withheld on line 1 of Schedule A (the amount is shown on your W-2). This is typically the only itemized deduction nonresident aliens. If this is the only itemized deduction you have, you can file Form 1040NR-EZ if you otherwise qualify. The amount goes on line 11. If you have additional itemized deductions, you must file Form 1040NR. Beginning in 2018, the deduction for the combined total of state and local taxes is limited to $10,000 per return.
The Standard Deduction
The standard deduction is a statutory allowance available to all residents. It is generally not allowed on the nonresident and dual status return, other than to nonresident students and business apprentices from India under Article 21(2) of the United States/India tax treaty.
Those taxpayers from India who claim the standard deduction cannot also claim itemized deductions. Also, if you are married filing separately, and your spouse itemizes deductions, you cannot claim the standard deduction. The standard deduction for single taxpayers and married taxpayers filing separately for 2017 is $6,350. Beginning in 2018, it is increased to $12,000, partly to account for the disallowance of personal exemptions. Of course, this will not benefit the vast majority of nonresident aliens.
Personal and Dependency Exemptions for Years Prior to 2018
For years prior to 2018, personal and dependency exemptions were statutory deductions representing the taxpayer, the spouse of the taxpayer and any allowable dependents of the taxpayer. The exemption amount was adjusted for inflation each year. For 2017 the amount was $4,050. That means eligible taxpayers could deduct $4,050 on their 2017 tax return for each allowable exemption. A discussion of exemptions is in Chapter Five of IRS Publication 519. There is also guidance in the Form 1040NR instructions.
Generally, whether you were married or single, you could not deduct dependency exemptions as a nonresident, even if you were supporting family members. That means only one exemption (your personal exemption) was typically allowed on Form 1040NR. However, residents of Mexico and Canada and nationals of the United States were allowed to deduct the spousal and dependency exemptions under the same rules as US residents. (This rule is in IRC Section 873(b)(3).) Also, residents of South Korea and students and business apprentices from India were eligible, under their countries' treaties, to claim spousal and dependency exemptions under certain circumstances. You could not file Form 1040NR-EZ if you claimed dependency exemptions.
The 2017 Tax Cuts and Jobs Act (P.L. 115-97) (the "Act") repealed exemptions for years 2018 through 2025.
New Child Tax Credit and Other Dependents Credit for Years After 2017
Child Tax Credit. As a partial replacement for dependency exemptions after 2017, the Act expanded the Child Tax Credit (IRC Section 24) from $1,000 to $2,000 for those previously qualifying for the credit. However, it further narrowed allowance of this credit for the small category of nonresident aliens who could previously claim it (those from Canada, Mexico, and South Korea, US nationals and students and business apprentices from India) by requiring the dependent to have a Social Security number prior to the due date for filing the tax return.
A dependent was previously required to qualify as a resident of the US for tax purposes, but could have an ITIN. Alien dependents qualifying as residents under the substantial presence test are generally not eligible for a Social Security number. However, if a nonresident in one of the above categories has a resident dependent with a Social Security number (because of US citizenship or permanent residence), the credit is available. All of the following must apply:
- The child must be a US citizen, national, or resident alien who resides with the taxpayer,
- The child must be a son, daughter, adopted child, grandchild, stepchild, or foster child,
- The child must be under 17 at the end of the year,
- The child must qualify as a dependent, and
- The child must have a valid Social Security number by the return due date.
Other Dependents Credit. An additional $500 credit was added by the Act for dependents who do not qualify for the $2,000 credit, and some nonresident alien taxpayers will qualify for this. This credit is also limited to nonresidents claiming dependents who are residents of the U.S, but the dependent can be issued an ITIN (as long as it's before the return due date).
Ken is a resident of Canada, entering the United States in 2018 as a J-1 visa holder working for an American university. Ken is a nonresident for 2018. Ken's spouse, Angela, is a US permanent resident who has no income and does not file a tax return. They have a child, Kenny, who is under 17, a permanent resident and has a Social Security number. Ken provides more than half of Kenny's support, and Kenny lives with Ken. Ken will file a nonresident return using Form 1040NR for 2018. Ken can claim the $2,000 Child Tax Credit for Kenny on his nonresident return.
The same facts as Example 1, except Angela is present in the United States as an H-1b visa holder and Kenny is present as an H-4 visa holder. Both Angela and Kenny have passed the substantial presence test, and Kenny has been issued an ITIN. Angela will file a US resident tax return and Ken will file a nonresident tax return. Ken and Angela together provide over half of Kenny's support, and Kenny lives with Ken and Angela. Ken's adjusted gross income is higher than Angela's adjusted gross income in 2018, so Ken is eligible to claim the Other Dependents Credit of $500 on his nonresident tax return. (See IRC Section 152(c)(4).) Ken is not eligible to claim the $2,000 Child Tax Credit because Kenny does not have a social security number.
The same facts as Example 1, except Angela and Kenny are present in the United States with J-2 family member visas. Angela has no income and will not file a tax return. Ken is not eligible to claim a Child Tax Credit or Other Dependents Credit for Kenny on his nonresident return, because Kenny is considered a non-resident alien in 2018, the same as Ken.
For those nonresidents formerly eligible to claim dependency exemptions through the tax treaty with India, the treaty appears to allow the Other Dependents Credit if they have dependents who pass the substantial presence test, otherwise qualify, and have been issued an ITIN. If a dependent has been issued a Social Security number and otherwise qualifies, the $2,000 Child Tax Credit could be claimed. It is not clear that the US tax treaty with South Korea (Article 4(7)) will allow the Child Tax Credit or Other Dependents Credit.
Any taxpayer claiming either the regular Child Tax Credit or the Other Dependents Credit must be issued a taxpayer identification number by the due date of the tax return.
Earned Income Credit
If you are a nonresident alien for any part of the year, the earned income credit is not available.
If you are a nonresident alien for any part of the year, educational credits such as the American Opportunity Credit and Lifetime Learning Credit are not available.
Credit for Child and Dependent Care Expenses
Although this credit has a line on Form 1040NR, it is very unlikely you will qualify for it. If you are married, you must file a joint return with your spouse to claim the credit. But as you see under Filing Status above, you are not allowed to file a joint return as a nonresident alien. If you are single, you must have a dependent who is a "qualifying individual" to get the credit. A qualifying individual is a dependent under the age of 13 or a disabled dependent. As you will find under Personal and Dependency Exemptions for Years Prior to 2018, dependency exemptions are typically not allowed to nonresident aliens. For more information on this credit, see Chapter Five of IRS Publication 519.
The Foreign Tax Credit
If you receive foreign source income that you also pay US tax on, you can claim a foreign tax credit. However, since you generally do not pay US tax on foreign source income, this credit is typically not available on the nonresident return. Also, you cannot take any credit for taxes imposed by a foreign country on your US source income if those taxes were imposed because you are a citizen or resident of the foreign country.
Where to Find Treaty Information
An income tax treaty (sometimes called "convention") is an agreement between two countries under which each country agrees to limit or amend the application of its domestic tax laws for residents of the other country. Therefore, if you receive income from sources in the United States and are a resident of a country with which the US has an income tax treaty in effect, you should check the provisions of the treaty to see if any of your income is exempt from US tax under the treaty, or is subject to a reduced rate. A treaty provision will generally override US statutory law.
IRS Publication 901, U.S. Tax Treaties, contains summaries of all the US tax treaties in effect relating to 1) personal service income, 2) income of professors, teachers and researchers, 3) income of students and apprentices, and 4) wages and pensions paid by a foreign government. It can be printed from the IRS Forms, Instructions & Publications site. Publication 901 no longer contains a table recapping the various forms of service income, but the table can now be found on the IRS website here: Table 2. Compensation for Personal Services Performed in United States Exempt from U.S. Income Tax Under Income Tax Treaties.
Publication 901 no longer contains a table summarizing special treaty rates for interest, dividends, pensions and annuities, social security and royalties. Instead, the table was updated and moved to the IRS website here: Table 1. Tax Rates on Income Other Than Personal Service Income Under Chapter 3, Internal Revenue Code, and Income Tax Treaties. These rates relate to income that is not effectively connected with a US trade or business, reported in Schedule NEC on page 4 of Form 1040NR. For a comprehensive list of treaty tables and links to forms used to claim treaty benefits, go to Tax Treaty Tables.
For updates from the US Treasury on current treaty information and text of the U.S. Model Income Tax Convention, see its Office of Tax Policy Resource Center. For the complete text of all tax treaties and Treasury Explanations in effect with the United States go to United States Income Tax Treaties - A to Z.
Treaty Benefits For Resident Aliens
Generally, all of the tax treaties to which the US is a party contain a "saving clause," which is meant to prevent residents of the treaty partner who are also citizens or residents of the US from using the treaty to reduce their US tax liability. Therefore, as a general rule, those individuals who qualify as a US resident, under either the green card test or the substantial presence test, are not eligible for treaty benefits.
However, most tax treaties contain an exception to the "saving clause" for various provisions, including the articles offering benefits for students, trainees, teachers and researchers. Therefore, if you are no longer an exempt individual, income you receive as an F, J, M or Q visa holder might be exempt from US taxation under the treaty with your home country, even if you are classified as a resident for US tax purposes. Treaty benefits could also be available to H, O and other visa holders who become residents for tax purposes during the first year they enter the United States.
As a resident, you will file Form 1040, Form 1040A or Form 1040-EZ, whichever applies to you. Attach Form 8833 to explain the treaty benefit being claimed as well as the reliance on an exception to the saving clause. On Form 8833, check the box indicating disclosure under section 301.7701(b) - 7 of the Treasury regulations. You are required to report worldwide income on the return, but may claim the standard deduction and any other deductions and credits to which a resident alien may be entitled. Mail the return to the Department of Treasury, Internal Revenue Service, Austin TX 73301.
Following are some examples that demonstrate the procedures you should use to determine your treaty benefits from IRS Publication 901 and Tables 1 and 2 on the IRS website. First, however, here are some definitions of treaty terms:
- Independent personal services: Self-employment income
- Dependent personal services: Wages of employees
- Scholarship or fellowship: Does not include compensation for services
Sue from Belgium
Facts: Sue is a nonresident who came to the US from Belgium in 2016 as an F-1 visa holder to study for her master's degree. Sue remained in the US in 2017 and 2018. In 2018 she received a $6,000 scholarship from her university that pays her room and board. She was not required to perform services to receive the money. Sue also received wages as a teaching assistant of $7,500, dividend income of $50 from a US corporation, and $10 in bank interest. How should Sue treat the income received for US tax purposes?
Answer: First, Sue must file Form 1040NR rather than Form 1040NR-EZ because she must report dividend income, which is not effectively connected with Sue's US trade or business. Tax on this income is computed in Schedule NEC on page 4 of Form 1040NR, and cannot be shown on Form 1040NR-EZ. Sue received Form 1042-S from the university indicating her scholarship income is taxable under Income Code 16. However, she should check Tax Treaty Table 2 on the IRS website to determine if the university is treating it correctly.
Looking at Tax Treaty Table 2, Sue finds the summary of the US/Belgium tax treaty for personal service income. Scholarship income is not listed under Income Code 16 (column 2), confirming that there is no treaty benefit for this income. However, under Income Code 20, "Compensation during study or training" is shown in column 3. This language fits Sue's wages.
The payor can be any US or foreign resident (column 5), and the maximum exemption amount allowable is $9,000 p.a. (per annum) (column 6). "Maximum Presence in U.S." (column 4) says 2 years, with a reference to footnote 45. Will this deny Sue the treaty exemption? Note that footnote 45 explains that the 2-year time limit pertains only to an apprentice or business trainee, so Sue's wages will qualify for the exemption. Therefore, although Sue must include her scholarship income in her gross income, her teaching assistant wages of $7,500 are exempt from taxation under treaty article 19(1)(b) (column 7). Sue should report the treaty exempt income on page 1 of Form 1040NR, and in Item L on page 5 of Form 1040NR.
With respect to her dividend income from a US corporation, Sue should look at Tax Treaty Table 1 on the IRS website, which gives tax rates on income other than personal service income. Table 1 indicates that dividends from a US corporation received by a resident of Belgium are taxed at 15% (column 6)(footnotes are not relevant). Sue should report her dividends in Schedule NEC on page 4 of Form 1040NR and show that a 15% tax rate applies. Sue should also also report the treaty rate on dividends in Item L on page 5 of Form 1040NR.
Bank interest is excluded from income statutorily under IRC Section 871(i)(2), and is not reported on the return.
Julie from France
Facts: Julie is an F-1 student from France who arrived in the US in 2015. In 2018 she received a $10,000 fellowship from the University of Minnesota to serve as a teaching assistant. How is her income treated on her US tax return?
Answer: A look at Tax Treaty Table 2 indicates that scholarship and fellowship grants received by French residents are tax exempt for up to five years. However, because Julie is performing services for her fellowship, it does not constitute a scholarship or fellowship for tax treaty purposes. Although it's called a fellowship, Julie receives Form 10402-S from the University showing the income under Income Code 20, "compensation during study or training." Looking under Income Code 20 (column 2) in Tax Treaty Table 2, Julie finds that compensation during study or training received for up to five years from a US (or other foreign) resident in the amount of $5,000 p.a. (annually) is excluded under Article 21(1). Julie should report the treaty exempt income of $5,000 as a notation on line 22 of page 1 and the taxable portion of $5,000 on line 8 of page 1, Form 1040NR. The treaty exempt amount should also be reported in Item L on page 5, indicating treaty Article 21(1).
Frederick from Germany
Facts: Frederick is a J-1 visa holder visiting the US from Germany. Frederick came to the US as a student visa holder in 2015 to study at the University of Minnesota. For 2015 and 2016, he claimed the exemption under Article 20(4) of the US/German tax treaty (Income Code 20) for compensation during study or training. In 2017, Frederick returned to Germany. He then re-entered the US as a non-student J-1 visa holder to teach and do research at the University of Minnesota in 2018. He plans to stay two more years and is paid $30,000 per year. How is his income treated on his US tax return?
Answer: First, as a non-student J-1 visa holder in 2018, Frederick is no longer exempt from the substantial presence test, since he was present in the US as an "exempt individual" for the two of the six years prior to 2018. (See Residency Status, above.) If Frederick is present in the US in 2018 long enough to pass the substantial presence test, he will qualify as either a dual status or full year resident for 2018. Looking at Tax Treaty Table 2 on the IRS website, Frederick would seem to qualify for the full exemption of his teaching/research income under Income Code 19 (column 2), Article 20(1) (an exemption for teaching generally applies to research too). Note the limit for the exemption is two years. Table 2 does not explain how his previous visit will affect his eligibility. Additionally, Table 2 does not indicate if a resident alien is eligible for the treaty exemption.
First, to address whether Frederick could claim the exemption while filing a dual status or resident tax return, we must look to the treaty itself, and amendments, to determine the scope of any exception to the "saving clause." United States Income Tax Treaties - A to Z provides access to the German treaty, which was amended by a 2006 protocol. Article 1 of the 2006 protocol provides for an exception to the saving clause for Article 20 to apply for an individual who is a resident, but neither a citizen nor a permanent resident of the United States. Therefore, if otherwise available, Frederick could claim the treaty exemption under Article 20(1) on his resident return.
Regarding the effect of his previous visit, it is helpful to read either Treaty Article 20(1) itself at US/German Tax Treaty, or IRS Publication 901 in the section for "Professors, Teachers and Researchers." Looking at the last sentence of paragraph one of Article 20, we get a clue: "The benefits provided in this paragraph shall not be granted to an individual who, during the immediately preceding period, enjoyed the benefits of paragraph 2, 3, or 4." It's not clear from this language what is meant by "immediately preceding period." More help is available in the Technical Explanation of the treaty written by the Treasury Department. This is also available at United States Income Tax Treaties – A to Z. Looking at the Technical Explanation of Article 20, paragraph 1, the Treasury writes:
A person is not entitled to the benefits of this paragraph if he has, during the immediately preceding period, enjoyed the benefits of paragraphs 2, 3 or 4 of this Article as a student, apprentice or trainee. If, however, following the period in which a person claimed student benefits under paragraphs 2, 3, or 4, that person resumes residence and physical presence in his original home State before returning to the host State as a teacher or researcher, he may claim the benefits of paragraph 1.
Therefore, since Frederick last claimed the student treaty exemption in 2016, returned to Germany in 2017 and reestablished residency, then returned to the US with a non-student visa in 2018, he appears to satisfy the requirements of the treaty. Frederick would claim the exemption on his resident or dual status return using Form 8833.
Ed from Canada
Facts: Ed is a J-1 nonresident from Canada doing post-doctorate work at the University of Iowa. In 2018 he received $11,000 in wages as a teaching assistant. How is his income treated on his US tax return?
Answer: Note that Tax Treaty Table 2 says that a maximum of $10,000 (column 6) of dependent personal services compensation (column 3) paid by any US or foreign resident (column 5) to a Canadian resident is excluded under Article XV of the US/Canada treaty (column 7). That might imply that Ed can exclude $10,000 of his $11,000 of wages from income. However, although not evident from the table, under the explanation of personal service income for Canada in IRS Publication 901 (on or about page 4), if the taxpayer earns more than $10,000 the total amount is taxable. Therefore, Ed cannot exclude any income under the treaty.
If you have taxable income on your federal return, or state income taxes were withheld from your income, you might have to file a return with the state in which you earned the income. All but seven states in the United States impose income taxes on individuals similar the federal income tax (but with lower rates).
The states that do not impose an income tax on individuals are: 1) Alaska (you actually get paid for living there), 2) Florida, 3) Nevada, 4) South Dakota, 5) Texas, 6) Washington, and 7) Wyoming. States that do not impose an income tax on wages are New Hampshire and Tennessee. States are independent from one another in their taxing authority, and all state tax forms differ in some respects. State income tax forms usually start with federal taxable income, or federal adjusted gross income, and require a few adjustments.
State Treatment of Tax Treaties
The states are not bound to honor federal tax treaties, but most do. Those that do not (that we are aware of) are: 1) Alabama, 2) Arkansas, 3) California, 4) Connecticut, 5) Hawaii, 6) Kansas, 7) Kentucky, 8) Maryland, 9) Mississippi, 10) Montana, 11) New Jersey, 12) North Dakota, and 13) Pennsylvania. If you live or work in one of these states, you will owe state income tax even though your income is exempt from federal income tax by a treaty.
Explore the States
Whether you want information about state taxes, or are interested in exploring information about the states for a place to visit, we have a terrific resource on our companion site at Explore the States. You can learn all about each state, including it's "livability" ranking, and pages for all the states with a state income tax include a link to the state Department of revenue.
Check it out!
Individual Taxpayer Identification Numbers (ITINs)
An ITIN is a number issued by the IRS to an individual who does not qualify for a Social Security number, but who is required to file a US tax return, or is claimed as a dependent on a US tax return. You and any dependents claimed on your tax return must have either a Social Security number or an ITIN, or your tax return will not be accepted by the IRS. (Of course, some forms are accepted even if you don't have an ITIN, like the ITIN application form (Form W-7) and the tax return you must file with the ITIN application form attached.)
You might need an ITIN if you do not qualify for a Social Security number and are one of the following:
- A nonresident alien who is required to file US tax return,
- A US resident alien who is required to file a US tax return,
- A dependent or spouse of a US citizen or resident alien,
- A dependent or spouse of a nonresident alien visa holder, or
- A nonresident alien claiming a tax treaty benefit.
ITINs are issued regardless of immigration status. In fact, even an undocumented alien who earns income is required to file a tax return and can obtain an ITIN, as long as proper identification documents are submitted. ITINs do not serve any purpose other than federal tax reporting. An ITIN does not:
- Authorize work in the US,
- Provide eligibility for Social Security benefits, or
- Qualify a dependent for the Earned Income Tax Credit.
If you are permitted to work in the United States, you should have a Social Security number. If you do not, get Form SS-5, "Application for a Social Security Card." If our link does not work, you can call 1-800-TAX-FORM (1-800-829-3676), or your nearest social security office. Take the completed form and the required documentation to the nearest social security office, and they will issue you a Social Security number.
The IRS is cautious about issuing ITINs, so an ITIN is not easy to get or to keep. Recent legislation has made the rules and procedures a little more cumbersome. To apply, Form W-7, Application for IRS Individual Taxpayer Identification Number, generally must be attached to your individual income tax return.
You must also attach documentation to establish your identity and your connection to a foreign country (foreign status). A list of 13 documents that will satisfy these requirements is shown in the Instructions for Form W-7. The one standalone document that satisfies both identity and foreign status is a current US passport. If you do not have a current US passport, one of the other documents from the list must be provided to prove foreign status and an additional document must be provided to prove identity.
Exceptions to Tax Return Filing Requirement
There are limited exceptions to the requirement of submitting a completed tax return with your ITIN application. An exception is generally available if you:
- are the recipient of partnership income, interest income, annuity income, rental income, or other passive income that is subject to third party withholding or covered by tax treaty benefits,
- claim the benefits of a U.S. income tax treaty with a foreign country and receive wages or other compensation; scholarships, fellowships or grants; gambling income; or you are receiving taxable scholarship, fellowship or grant income but not claiming the benefits of a tax treaty,
- have a home mortgage loan on real property you own in the United States that is subject to third party reporting of mortgage interest,
- sold or exchanged real property located in the United States, which is subject to withholding by the buyer or transferee, or
- have an IRS reporting requirement as a non-US representative of a foreign corporation who needs to obtain an ITIN for the purpose of meeting their e-filing requirements under TD 9363 and are submitting Form W-7 with Form 13350, Registration for e-services.
An explanation of these five exceptions is in Instructions for Form W-7. You can also renew your ITIN and those of your spouse and dependents without filing a tax return. See below about renewal requirements.
Only original documents, or "certified" copies of the documents are accepted. A certified document is one that the original issuing agency provides and certifies as an exact copy of the original document, and contains an official stamped seal from the agency.
Don't try to send a "notarized" copy. A notarized document is one that the taxpayer provides to a public notary who bears witness to the signing of the official document and affixes a seal assuring that the document is legitimate. These documents will not be accepted, unless you are a US citizen or resident member of the US military and are submitting documentation for a dependent. The IRS promises to return original documents within 60 days. However, it's always very risky to send original documents.
There are ways to avoid sending original or certified documents through the mail.
- You can take your completed tax return and original or certified documents to a designated IRS Taxpayer Assistance Center. There they will certify your documentation and forward your tax return to the IRS Service Center. Here is a list of Taxpayer Assistance Center Locations where in-person document review is provided.
- If you are a nonresident alien student F, J, or M visa holder, present in the US under the Student Exchange Visitors Program (SEVP), you, your spouse and dependents can have your original IDs certified by a SEVP-approved institution. This can be done prior to filing a tax return if you will receive taxable scholarships, fellowships, or other grants.
- You can work with a Certified Acceptance Agent, such as us (see How to Get An ITIN) who can certify your documentation.
How to Renew Your ITIN
An ITIN that has not been used on a federal tax return at least once in the last three years will no longer be valid for use on a tax return unless renewed by the taxpayer. In addition, an ITIN issued prior to 2013 with middle digits of 73, 74, 75, 76, 77, 81, or 82 (example: 9XX-73-XXXX) will need to be renewed to file a tax return for 2018. The IRS has had a rolling renewal schedule since 2016. ITINs with middle digits 70, 71, 72, 78, 79 and 80 already expired in 2016 and 2017. However, these ITINs can still be renewed. In 2019, nearly 2 million ITINs will expire. Scheduled to expire on December 31, 2019 are those ITINs with middle digits 83, 84, 85, 86 and 87. The Internal Revenue Service urges affected taxpayers to submit their renewal applications early to avoid refund delays next year. (IR 2019-118.)
If you have an expired ITIN and you don't renew it before filing your tax return, you could face a delay in your refund and may be ineligible for certain tax credits, such as the Child Tax Credit. Your ITIN must be renewed by the due date for filing your return to claim this credit. The IRS emphasizes that no action is needed by ITIN holders if they don’t need to file a tax return next year.
To make this renewal effort easier and reduce paperwork, the IRS offers a family option for ITIN renewal. If any individual receives a renewal letter from the IRS, they can choose to renew the ITINs of all of their family members at the same time rather than doing them separately over several years. Family members include the tax filer, the spouse and any dependents claimed on their tax return.
New Requirement For Dependents Whose Passports Do Not Have A Date Of Entry Into The U.S.
The IRS will no longer accept passports that do not have a date of entry into the US as a stand-alone identification document for dependents, other than dependents of military members overseas. Affected applicants will now be required to submit either US medical records for dependents under age six, or US school records for dependents under age 18, along with the passport. Dependents aged 18 and over can submit a rental or bank statement or a utility bill listing the applicant’s name and US address, along with their passport.
We Can Help - We Are Certified Acceptance Agents
We offer this service, and here's where you can learn about our service. One advantage of working with us as CAAs is the free follow-up work we perform if the IRS has questions about your application.
Here are some more sources of information to visit:
- The ITIN information page,
- ITIN Expiration FAQs,
- Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number.
Social Security Tax and Employer Withholding
Must You Pay Social Security and Medicare Tax?
Nonresident aliens who are F-1, J-1, M-1 or Q-1 visa holders are not subject to social security and Medicare taxes (FICA) on services are performed to carry out the purpose for which they are admitted to the United States [IRC sec. 3121(b)(19)]. This generally includes on-campus work for which authorization is granted on Form I-94, Arrival and Departure Record, or Form I-20, Certificate of Eligibility for Nonimmigrant Student Status.
A nonresident alien admitted to the US as a student is not permitted to work off campus for a wage or to engage in business unless given approval by the U.S. Citizenship and Immigration Services (CIS). This should be noted on the student's copy of Immigration Form I-20, or Form I-688B, Employment Authorization Document.
Off-campus work due to severe economic necessity or for optional practical training is considered by the IRS to qualify for the exemption. The IRS does not consider other off-campus work performed by a nonresident alien student to be performed to carry out the purpose of a student visa.
Resident aliens, as well as nonresident aliens who are F-2, J-2, M-2, Q-2 or any other types of visa holders, are not exempt from FICA taxes as nonresident aliens. However, IRC section 3121(b)(10) provides an exemption from FICA for services performed in the employ of a school, college, or university, if the service is performed by a student who is enrolled and regularly attending classes at that school, college or university.
Therefore, international students who do not qualify for the exemption for nonresident aliens might be exempt under this provision. On the other hand (just to add a bit more to the confusion), the law allows states to provide Social Security coverage for services performed by students for the public school the student is attending under agreements established with the Social Security Administration.
If a state has exercised its option to provide for coverage of student services, section 3121(b)(10) of the Code provides that those services will not qualify for the student FICA exception. If you wish to read the official announcement from the IRS on who might qualify for this student exemption, here is a link to the ruling: Rev. Proc. 98-16.
How to Obtain a Refund
If FICA has been withheld from your wages by mistake (look in box 4 of your W-2), you should first ask the employer who withheld the tax for a refund. If the employer does not grant a refund, a refund can be claimed from the IRS on IRS Form 843. Follow the instructions for claiming a refund in Chapter 8 of IRS Publication 519. Both Form 843 and Publication 519 can be printed from the US Treasury's Forms and Publications site. Note that you must additionally attach IRS Form 8316, a statement from your employer (if possible), and a copy of your W-2, visa, INS Form I-94, INS Form I-538 (if you have one), and a statement saying "tax was withheld by mistake and my employer denied me a refund." This information is sent in its own envelope (separate from your tax return) to Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, U.S.A.
If you are in the United States only temporarily for work or study and are not exempt from social security under one of the above provisions, your US social security contributions may provide benefits in your home country under a "totalization agreement" that the US has negotiated with several other countries. For more information on totalization agreements and the countries participating go to the Social Security Administration's Office of International Programs site.
How To Get Your Employer To Withhold The Proper Amount
If you have checked your country's treaty with the US and have found you qualify for a treaty exemption on your wage or scholarship income, you must file IRS Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with the payor of the exempt income.
You must include with Form 8233 a statement detailing your eligibility for the specific tax treaty exemption. You will find sample statements for each treaty country in IRS Publication 519, Appendix A (for students) and Appendix B (for teachers and researchers). Form 8233 and Publication 519 can be downloaded from the US Treasury's Forms and Publications site, or you can call 1-800-TAX-FORM (1-800-829-3676) and ask for them to be mailed to you.
IRS Resources For Resident Aliens And Nonresident Aliens
Taxation of Nonresident Aliens: Here are the general rules for nonresident aliens, with links to Form 1040NR, Form 1040NR-EZ, and all other required forms.
References for Foreign Students and Scholars: All the information you could hope for if you are visiting the United States as an F, J, M or Q visa holder.
Source of Income: There are different sourcing rules for different types of income for nonresident aliens, which determine what country has taxing authority. Here's a guide.
Exclusions: Here's a hand list of the various exclusions from income for nonresident aliens.
Real Property: Here's a brief guide on how nonresident aliens are taxed on US real property income and sales.
Figuring Your Tax: Here's a brief guide on the exemptions and deductions available to nonresident aliens.
Tax Treaties: Here's a brief guide on how treaties affect resident and nonresident aliens and links to all the IRS treaty information.
Taxation of Capital Gains of Nonresident Alien Students, Scholars and Employees of Foreign Governments: Although most nonresident aliens are exempt from capital gains tax, some are not. Here are the rules.
Tax Withholding on Foreign Persons: Here are links to rules on the various types of withholding applicable to nonresident aliens.
Taxpayer Identification Numbers: Here's a guide on the various taxpayer identification numbers nonresident aliens need or are eligible for.
Estate and Gift Tax Rules for Nonresident Aliens: Some estate and gift tax rules for nonresident aliens and US citizens receiving gifts from "covered expatriates."